LMT reported 1Q20 EPS of $6.08 ahead of our $5.93E and consensus of $5.80. Upside to our estimates came on higher sales across all segments (+$0.37), only partially offset by worse than expected margin at Space (-$0.21). It’s actually hard to have a slightly boring earnings call in today’s world, but LMT somehow pulled it off, speaking to their stability.

We are updating estimates today (4/21/20) for our commercial aerospace coverage to reflect a more bearish outlook. Changes to our commercial aerospace estimates can be found on page 2. We are also providing initial thoughts on HXL after its earnings report on 4/20 after the market close.

We are updating estimates today for our A&D coverage to consider the impact of Covid-19, as well as additional recent debt raises. Changes to our commercial aerospace and defense estimates can be found on pages 2 and 3, respectively. While defense stocks should see relatively less direct impact from Covid-19, we assume some disruption of supply chains for manufacturers, a little bit less short cycle-type work as contractors are sent home, and incremental interest expense from recent debt raises. We also update our pension estimates for poor asset returns.

Here’s some non-Covid-19 research. While this topic is not on the forefront of most investor minds for obvious reasons, we believe a downselect for this important U.S. Army program is imminent, and it is worth discussing.

We spent the last week scrubbing the FY21 DoD budget request in detail to identify important trends for each major defense prime in our coverage. As was expected, the FY21 defense budget represents a 1% decrease over the FY20 enacted level, which obviously drove some spending cuts in key programs. The DoD budget focuses on National Defense Strategy (NDS) priorities including next-generation smart munitions, advanced fighter jets, modernization of all three legs of the nuclear triad, missile defense, and cyber and space. The FY21 budget also includes the largest RDT&E budget ever requested in order to increase investment in advanced technologies including artificial intelligence, directed energy, and hypersonic weapons. Based on the DoD’s priorities, we believe defense primes are generally well-positioned given their exposure to key programs that align well with the NDS.